Agnes Matits Working Party on Private Pensions, June 2000, Paris Agnes Matits Working Party on Private Pensions, June 2000, Paris Governance of the Hungarian Private Pension Funds Agnes Matits Budapest, Hungary

Agnes Matits Working Party on Private Pensions, June 2000, Paris Agnes Matits Working Party on Private Pensions, June 2000, Paris Pension System in Hungary STATE PENSION Mandatory Private Pension Life annuityLife annuity(lump sum)lump sum or annuity full guaranteeminimum guaranteeno institutional guarantee Social SecurityMandatory Pension Fund Voluntary Mutual Benefit Fund Central Retirement BudgetIndividual accountsIndividual account PAYGODefined contributionDefined Contribution Employer contributionsEmployee contributions Mandatory VoluntaryMandatory up to earnings limit Voluntary contribution/ donation regularoccasional ( State Pension Mandatory Pension Funds Voluntary system contributions Voluntary Private Pension

Agnes Matits Working Party on Private Pensions, June 2000, Paris Agnes Matits Working Party on Private Pensions, June 2000, Paris PRIVATE PENSION FUNDs in Hungary n Mandatory Pension Funds n Voluntary Mutual Pension Funds Main features defined contribution immediate vesting special fund corporation Pensionkassen – –non-profit – –self- governed

Agnes Matits Working Party on Private Pensions, June 2000, Paris Agnes Matits Working Party on Private Pensions, June 2000, Paris The Pension Fund Corporation n Legal entity n The members are the owners n The organizations of the fund the General Meeting of the Members/ Delegatesthe General Meeting of the Members/ Delegates Board of DirectorsBoard of Directors Auditing committeeAuditing committee n Certain experts and executives must be employed

Agnes Matits Working Party on Private Pensions, June 2000, Paris Agnes Matits Working Party on Private Pensions, June 2000, Paris The general meeting n the main decision body n delegates elected by and from the members for 5 years term n consists of 25 to 100 delegates n should be convened at least once a year

Agnes Matits Working Party on Private Pensions, June 2000, Paris Agnes Matits Working Party on Private Pensions, June 2000, Paris The rights of the General Meeting n to modify the Charter of the Fund n to elect the governing bodies and their chairpersons n to approve the annual reports and the financial plans n to decide on the auditor, on membership fees n to decide on M&As Comment : the bigger the fund the more formal decisions are made by the general meeting

Agnes Matits Working Party on Private Pensions, June 2000, Paris Agnes Matits Working Party on Private Pensions, June 2000, Paris The Board of Directors n n The managing body of the Fund n n Fund members should be represented At the voluntary funds only fund members could be elected to the Board n n Shall meet at least in every three months n n Shall consist of an odd number of members voluntary funds : min of 3 members mandatory fuds : min of 7 members

Agnes Matits Working Party on Private Pensions, June 2000, Paris Agnes Matits Working Party on Private Pensions, June 2000, Paris Roles of the Board of Directors to prepare the decisions of the general meetingto prepare the decisions of the general meeting to decide the business strategyto decide the business strategy to decide the mode of operations, select the contracting partnersto decide the mode of operations, select the contracting partners to approve the regulation of asset management and the services of the Fundto approve the regulation of asset management and the services of the Fund to ensure that the books and records are kept in accordance to the rulesto ensure that the books and records are kept in accordance to the rules to exercise the ERs rights over the managing directorto exercise the ERs rights over the managing director Comment : the members of the Board of Directors are often representatives of the interest of founding institution

Agnes Matits Working Party on Private Pensions, June 2000, Paris Agnes Matits Working Party on Private Pensions, June 2000, Paris The corporate governance n Same corporate forms different governance roles different governance roles n The role of governing bodies depends on the working structure n The more diversified structure the less need for expertancy of fund corporation

Agnes Matits Working Party on Private Pensions, June 2000, Paris Agnes Matits Working Party on Private Pensions, June 2000, Paris Pension Fund Operations Executive accountant, Lawyer,Actuary, Investment specialist Portfolio record-keeping Control of asset managers Physical custodianship Investment and asset valuation Administration Custodian Service Banking Maintaining current account Operational Management Cash handling Transfers Asset Management Investment activity Investment account maintenance Security account maintenance Investment valuation Report on market trends Professional works Record- keeping Book keeping Data processing Investment recording Marketing Communication with members Communication with employer Liquidity management Control of outsourcing partners Statutory reports Establishment of pension benefits Auditing

Agnes Matits Working Party on Private Pensions, June 2000, Paris Agnes Matits Working Party on Private Pensions, June 2000, Paris Some typical working structures of Hungarian Private Pension Funds I: Plain structure Pension Fund Corporation Commercial Bank Comment: Only Banking and Custodonian Services are contracted out Auditor

Agnes Matits Working Party on Private Pensions, June 2000, Paris Agnes Matits Working Party on Private Pensions, June 2000, Paris Some type of working structures of Hungarian Private Pension Funds II: Specialised structure Pension Fund Corporation Commercial Bank Asset Management Company Auditor Comments: Comments: Investment activity is also out-sourced Often more paralel contracts

Agnes Matits Working Party on Private Pensions, June 2000, Paris Agnes Matits Working Party on Private Pensions, June 2000, Paris Some typical working structures of Hungarian Private Pension Funds III: Racionalised stucture Pension Fund Corporation Commercial Bank Asset Management Company Auditor Administration Service Company Founders are often the owners of both the Asset Mngmt. Co. and the Admin Service Company Comments: Founders are often the owners of both the Asset Mngmt. Co. and the Admin Service Company

Agnes Matits Working Party on Private Pensions, June 2000, Paris Agnes Matits Working Party on Private Pensions, June 2000, Paris Some typical working structures of Hungarian Private Pension Funds III: Diversified structure Pension Fund Corporation Bank Asset Management Company Auditor Administration Service Company Custodian Service Company

Agnes Matits Working Party on Private Pensions, June 2000, Paris Agnes Matits Working Party on Private Pensions, June 2000, Paris Some lessons from the practice n Self-governance vs. Corporate governance n the professinalism of governing bodies n conflicts of interest n formal decisions n selection of contracting parties n market competition

Agnes Matits Working Party on Private Pensions, June 2000, Paris Agnes Matits Working Party on Private Pensions, June 2000, Paris Thank you for your attention ! Dr Agnes Matits Senior consultant at the International Training Centre for Bankers Independent Actuary and Pension consultant of several Private Pension Funds Chairperson of the Board of Directors, Ráció Voluntary Pension Fund Address : International Training Centre for Bankers 1022 Budapest,Csopaki u phone : ( 36 1 ) or fax : ( 36 1 ) mobil : ( 36 ) or